BMI View: The outlook for Ukraine's economy has deteriorated rapidly since the publication of our Q2
Food & Drink report. Our Country Risk team believes that Ukraine will experience a deep recession in
2014, and forecasts near-stagnant economic growth through to 2018. Recession in 2014 will be driven by
the devaluation of the hryvnia and major trade disruption due to the elevated risk of a military escalation
with Russia. Soaring inflation, substantially tighter government spending, diminished purchasing power
and extremely tight credit conditions will also contribute to the dismal economic outlook.
The slowdown has already begun, with recently released data indicating that the economy contracted by
1.1% in the first quarter of 2014. Soaring inflation, substantially tighter government spending, diminished
purchasing power and extremely tight credit conditions all point towards a sharp recession in 2014, and we
expect real GDP to contract by 4.1% this year. While the IMF loan may help to instil some confidence in
Ukraine's debt servicing abilities over the coming quarters, the associated austerity measures and economic
reforms will push the economy into contraction.